What happens to my car when I file bankruptcy?

I get asked this question pretty often: what happens to my car when I file for Chapter 7 bankruptcy? The answer is - it depends.

If you own the car outright then we must use the bankruptcy exemptions to protect as much of the value of the automobile as possible.

You are allowed a $1,000 equity exemption on one vehicle. If you are filing jointly then your spouse may add his or her exemption for a total of $2,000. Generally, the trustee of the bankruptcy court values automobiles based upon KBB or NADA values taking into account wear and tear on the car.

We can also utilize any unused personal property exemptions (up to $8,000 for a non-Homestead filing couple) to further protect the value of the automobile.

If you are making payments to a bank then the vehicle is secured property and is dealt with a bit differently. The amount of money owed on the vehicle is subtracted from the market value of the vehicle. If this is a negative number then there is no equity and you can choose to reaffirm the note and keep the vehicle - or simply give it back.

If there is equity then this amount can be exempted using the process described above.